A Simple Pair Trade Strategy In Liquid ETFs

Last Updated on November 21, 2020 by Oddmund Groette

This Sunday morning I was just testing some ideas on these different ETFs: SPY, EEM, EWG, EWU and EWJ. They seek to copy the performance of the most important stock exchanges in the world. I tested the following:

  1. Every day rank each ETF based on the IBS formula: (c-l)/(h-l).
  2. Buy on the close the one with the lowest value, short the one with the highest value.
  3. Exit on the close next day.

Here is the equity curve in %:

The test period is from 1. January 2005 until the present.  No commission and no slippage.

I did this test in about 15 mins and have not double-checked for any errors.

Does anyone trade something similar to this? Obviously, this one is hard to implement because the MOC needs to be sent 15 mins before close.